Thursday, November 01, 2012

Rhode Island’s economic development agency on Thursday sued former Red Sox pitcher Curt Schilling and some of its former officials in connection with a $75 million loan guarantee to his failed video game company.

The suit was filed in Rhode Island Superior Court four months after 38 Studios filed for bankruptcy after a spectacular collapse. The board of the Economic Development Corp. in 2010 lured 38 Studios to Providence from Massachusetts with the loan guarantee.

Reader Comments and Retorts

Statements posted here are those of our readers and do not represent the BaseballThinkFactory. Names are provided by the poster and are not verified. We ask that posters follow our submission policy. Please report any inappropriate comments.

It looks like he's taking over the mantle of his old teammate Lenny Dykstra, ack.

That seems like a stretch at this point. The lawsuit is a civil matter, and seems to be contending that it is Schilling's fault that the staff of the state's Economic Development Corporation didn't convey information to the Board of the Economic Development Corporation. Not sure that's a winner, and it also seems many levels of magnitude less evil than Dykstra, even if more money is involved.

It looks like he's taking over the mantle of his old teammate Lenny Dykstra, ack.

They lent his business money. He personally guaranteed the money. The business failed, leaving far too little to repay the loan. He apparently invested most of his fortune in the business, and doesn't appear to have the funds to repay the loan, so he is very likely to be forced to file personal bankruptcy to cap his obligations to the state to what remains of his net worth, instead of the entire $75M plus penalties.

This is how business works. If you lend to a business, you prefer to have some sort of collateral or personal guarantee to make recovery of your loan more likely in case the business has troubles. But the value of that guarantee is often limited when the sums outstrip the amounts a person can repay, personal bankruptcy is always the case.

Bankruptcy and failure aren't shameful in business unless your failure was caused by incompetence or malfeasance, and even then incompetence and arrogance aren't criminal acts. There is no more debtors prison, if there was a large number of U.S. home owners would be in it. Many, if not most of, VC investments fail, and often the founders, CEOs and top level managers are still in high demand at the next VC backed startup. I've had VCs tell me they prefer entrepeneurs with failures on their resume, it makes them more experienced and often, less arrogant. and better to work with, both for employees and boards.

So yes, Curt Schillings behavior here is nothing like Dykstras. It appears that Curt grew his business too fast and too aggressively because he was too in love with the product, and too inexperienced in running a startup. Ironically, Rhode island giving him money was probably the worst thing, because he should have been forced to take on experienced investors who would have exerted control from the board and pulled back the reins on Curt, either demoting or firing him if necessary, to make sure the business grew within it's resources with a proper business plan, and always had enough cash to keep operating long enough to fulfill the plan (or shut it down before it ran out of all of it's cash).

I think Rhode Island deserves the bigger black eye here, taking taxpayer money to give to a private business to "create jobs" is always a bad idea economically. The taxpayers shouldn't bear the risk, the types of companies that get these kind of guarantees are economic black holes that can't get funded by rational investors because their business plans are so unlikely to succeed, and often they get guarantees because they are politically connected to the right people. That's why we get terrible solar companies, electric car companies, etc, because they are all welfare businesses that create little to no economic value and collapse as soon as the government's teat is withdrawn.

schilling's was most likely one of enthusiasm with bad business sense.

dykstra had some good business sense (car washes, even though there were rumors of illegal activities then), but lots of stuff after that was (according to witnesses), even if not provable, outright theft/illegal.